| Income Taxes |
For the quarter ended March 31, 2026, the Corporation recorded an income tax expense of $ 46.9 million with an effective tax rate (“ETR”) of 16.0 %, compared to $ 45.1 20.2 % for the same period of year 2025. Lower ETR when compared to the first quarter of 2025 is driven by higher net exempt income. The Puerto Rico statutory tax rate is 37.5 % for both periods. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Significant components of the Corporation’s deferred tax assets and liabilities at March 31, 2026, and December 31, 2025, were as follows: March 31, 2026 PR US Total Deferred tax assets: Tax credits available for carryforward $ 7,318 $ 54,154 $ 61,472 Net operating loss and other carryforward available 63,350 554,936 618,286 Postretirement and pension benefits 30,200 - 30,200 Allowance for credit losses 337,923 29,096 367,019 Depreciation 8,528 7,996 16,524 FDIC-assisted transaction 152,665 - 152,665 Lease liability 31,943 18,607 50,550 Unrealized net loss on investment securities 158,885 14,038 172,923 Mortgage Servicing Rights 15,413 - 15,413 Other temporary differences 33,150 7,515 40,665 Total gross deferred tax assets 839,375 686,342 1,525,717 Deferred tax liabilities: Intangibles 96,278 56,545 152,823 Right of use assets 29,162 16,922 46,084 Deferred loan origination fees/cost 18,941 2,278 21,219 Loans acquired 17,132 - 17,132 Other temporary differences 9,241 429 9,670 Total gross deferred tax liabilities 170,754 76,174 246,928 Valuation allowance 81,702 386,586 468,288 Net deferred tax asset $ 586,919 $ 223,582 $ 810,501 PR US Total Deferred tax assets: Tax credits available for carryforward $ 7,318 $ 46,632 $ 53,950 Net operating loss and other carryforward available 59,578 568,156 627,734 Postretirement and pension benefits 29,453 - 29,453 Allowance for credit losses 255,017 28,465 283,482 Deferred loan origination fees/cost 7,205 (2,474) 4,731 Depreciation 8,422 7,899 16,321 FDIC-assisted transaction 152,665 - 152,665 Lease liability 27,382 17,758 45,140 Unrealized net loss on investment securities 160,809 12,850 173,659 Difference in outside basis from pass-through entities 54,457 - 54,457 Mortgage Servicing Rights 15,375 - 15,375 Other temporary differences 26,347 7,586 33,933 Total gross deferred tax assets 804,028 686,872 1,490,900 Deferred tax liabilities: Intangibles 92,797 55,760 148,557 Right of use assets 24,846 15,875 40,721 Loans acquired 17,053 - 17,053 Other temporary differences 7,082 429 7,511 Total gross deferred tax liabilities 141,778 72,064 213,842 Valuation allowance 78,153 386,587 464,740 Net deferred tax asset $ 584,097 $ 228,221 $ 812,318 The net deferred tax assets shown in the table above at March 31, 2026, is reflected in the Consolidated Statements of Financial Condition as $ 811.2 million in net deferred tax assets in the “Other assets” caption (December 31, 2025 - $ 814.2 649 thousand in deferred tax liabilities in the “Other liabilities” caption (December 31, 2025 - $ 1.9 million), reflecting the aggregate deferred tax assets or liabilities of individual tax-paying subsidiaries of the Corporation in their respective tax jurisdiction, Puerto Rico or the United States. At March 31, 2026, the net deferred tax assets of the U.S. operations amounted to $ 610.2 million with a valuation allowance of approximately $ 386.6 million, for net deferred tax assets after valuation allowance of $ 223.6 million. The Corporation evaluates the realization of the deferred tax asset by taxing jurisdiction on a quarterly basis. The U.S. Operations have generated taxable income each of the last three years. The financial results for the first quarter of 2026 continue to show an upward trend similar to 2024 and 2025. These financial results are objectively verifiable positive evidence. Additionally, the Corporation considered as negative evidence inconsistency in performance trends, including lower than anticipated results in recent periods. Also, management considered the uncertainty in predicting future taxable income, as given the impact of external factors such as changes in macroeconomic conditions, geopolitical issues, and shifts in monetary policy. In addition, management evaluated the expiration period of the NOLs carried forward which begin to expire in 2028 As of March 31, 2026, after weighting all positive and negative evidence, the Corporation concluded that it is more likely than not that $ 223.6 million of the deferred tax assets from the U.S. operations, comprised mainly of net operating losses, will be realized. The Corporation based this determination on its estimated taxable income available to realize the deferred tax assets for the remaining carryforward periods, together with the historical level of book income adjusted by permanent differences and taxable income. Management will continue to monitor and review the U.S. operation’s results, including recent earnings trends, pre-tax earnings forecasts, new tax initiatives, and performance indicators, such as net income versus forecast, targeted loan growth, net interest income margin, changes in deposit costs, allowance for credit losses, charge-offs, NPLs inflows, and NPA balances. Significant changes, or a combination of changes, could positively or negatively impact the amount of deferred tax assets to be realized in the future. At March 31, 2026, the Corporation’s net deferred tax assets related to its Puerto Rico operations amounted to $ 668.6 Corporation’s Puerto Rico Banking operation has a historical record of profitability. This is considered as strong objectively verifiable positive evidence that outweighs any negative evidence considered by management in the evaluation of the realization of the deferred tax assets. Based on this evidence and management’s estimate of future taxable income, the Corporation has concluded that it is more likely than not that such net deferred tax assets of the Puerto Rico Banking operations will be realized. The Holding Company operation has been in a cumulative loss position in recent years. Management expects these losses will be a trend in future years. This objectively verifiable negative evidence is considered by management strong negative evidence that suggests that income in future years will be insufficient to support the realization of all deferred tax assets. After weighting of all positive and negative evidence Management concluded, as of the reporting date, that it is more likely than not that the Holding Company will not be able to realize any portion of the deferred tax assets. Accordingly, the Corporation has maintained a valuation allowance on the deferred tax assets of $ 81.7 million as of March 31, 2026. The Corporation and its subsidiaries file income tax returns in Puerto Rico, the U.S. federal jurisdiction, various U.S. states and political subdivisions, and foreign jurisdictions. At March 31, 2026, the following years remain subject to examination in the U.S. Federal jurisdiction, 2022 and thereafter; and in the Puerto Rico jurisdiction, 2019 and thereafter. |